Absa - a good set of numbers, but operating costs are also up, worryingly so.

01 March 2006 Angelo Coppola

Absa in its new guise as 56% owned by UK conglomerate Barclays plc, announced their maiden financial results opting to report on a shorter period to bring the local bank into line with the rest of the Barclays group, and also to meet certain IFRS require

Speaking at an analysts presentation in Johannesburg, Steve Booysen head of Absa said that it has been a rewarding period, with market capitalization currently at R79bn, up substantially on the last 12 months, and a reported R67.4bn for the reporting period.

Headline earnings were up 22.1%; headline earnings per share were up 20%, while the dividend payout ratio had improved. Non performing loans were down substantially, which could be a result of the improved economic environment, while they increased the number of black customers by 50% to 3.9 million people, of a total of 7.7 million people.

Quarterly earnings were up in the third quarter, compared to the previous two quarters.

Retail banking was up, with the main driver mortgage bonds, and credit card growth was up. In the retail market there was a drop in margins, due to competition and dependence on wholesale funding.

On the commercial banking front they are the leaders in the agricultural, public sector, franchising, and the leaders in commercial property finance. And they used this to leverage further ground.

In terms of personal and commercial deposits, retail deposits were down, commercial deposits were down, while wholesale deposits were up, albeit for a shorter reporting period, reports FD Jacques Schindehutte.

In terms of wholesale banking they are winding up their offshore operations. Singapore was closed, while the Asia office will be closed mid 2006 and the UK operation will be scaled down considerably.  There was a loss of R39m for the year.

On the Barclays integration Booysen said that the synergy benefits seemed to be on track, with the perceived benefits for 2005 being outstripped by the actual benefits, and they spent R211m for the period as part of its integration costs.

There is an increased cost the R120m of integration costs, R139m of Barclays synergy costs, and staff costs increased by 20%, a function of headcount increase of 1000 people and incentives. Marketing spend went up, while Personal Financial Services the new and improved private bank - also sucked income. 

The marketing spend was in the region of R541m, compared to R510m for the previous 12 month period.

Barclay card
The bank exited the Standard Bank joint venture in terms of the Barclaycard and according to Schindehutte and Booysen there is an aggressive campaign planned to win market share. Booysen says that they will use the Barclays.

He maintained that the bancassurance model is working, with broking commissions enhanced by a short-term insurance resurgence.

Booysen says that improving penetration levels in the portfolio will happen on the back of a strong equity market they the bancassurance business, benefited tremendously. This certainly played its role in the numbers, confirmed the Absa FD Jacques Schindehutte.

Looking ahead Booysen says that they want to extend this franchise bancassurance. This is a leading model and they are working on the customer base and the product mix, using data-mining to take further advantage.

In terms of the cultural differences, Booysen says that only English will be spoken in one of their steering committee meetings, taking a sideways swipe at the rumour-mongers.  

Consumerism and compliance investment notwithstanding, the national credit bill is a great opportunity for the banking industry, says Booysen, as they support openness and transparency.

Schindehutte says that this is the last time that Unifer will appear in the Absa numbers, and they are proud to announce a 0% growth in dividend and its no mean feat to match the dividend for a 12 month period.

In terms of an African plan Schindehutte says that they hope to raise R4bn via a preferential share programme over the next 18 months or so, as part of the acquisition of the Barclays sub-Saharan African operations.  This is early days yet and regulatory approval or commentary will be sought closer to the time. The acquisition still has to be brought before the shareholders.

The joker in the pack, according to Schindehutte, is that in 2008 the first load of shares provided to their empowerment partner has to be settled, and they will work closely with the BEE partners to see how this will be financed.


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